Question
Hi I was trying to practice calculations, and I am stuck on this question. Suppose the real risk-free rate is 3.50%, the average future inflation
Hi I was trying to practice calculations, and I am stuck on this question. Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.25%, a maturity premium of 0.08% per year to maturity applies, i.e., MRP = 0.08%*t, where t is the years to maturity.Suppose also that a liquidity premium of 0.5% and a default risk premium of 0.85% applies to A-rated corporate bonds.How much higher would the rate of return be on a 10-year A-rated corporate bond than on a 5-year Treasury bond?
I think I would set it up as finding out the PV? and then plugging that answer into the equation?
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